No tariffs no worries. Stocks rallied on hopes of a trade resolution yesterday with the Dow, S&P, and NASDAQ clocking in some impressive gains. The session started off with some weaker than expected inflation data in the Consumer Price Index, which showed a monthly gain of +0.2% and yearly gain of +2.7%, both 0.1% lower than expectations. The initial response to the numbers was in bonds, as they expectedly rallied on the news. Remember, lower inflation means that the Fed will tighten credit more slowly, which is bullish for bonds. But the rally was short-lived because once the stock bulls entered the room, treasuries receded confirming the move in equities. 10 year yields traded as high as 2.98% yesterday prior to the number, after which they fell to 2.944%. They have since risen back up to 2.97% in later session and an overnight rally. Bond traders will surely have 3% in their sights, where bonds will experience significant resistance while they will continue to get support from the 2.94% Fibonacci line. Dare I mention, that every time bonds close over 3%, stocks get a bit weak in the knees? Yesterday, stocks were anything but weak as the S&P 500 traded up +0.53% getting a close above the 2900 line, which is positive for the large cap index. The close is the second highest in its history and it is within striking distance of its all-time high (see chart 4 in my attached daily chartbook). The Dow Jones got a nice boost from the trade news tidbit (that is really all it was) and it managed to post an important close above 26000. It, in fact, closed just under the 26617 resistance line and a close above would be a positive signal for the index (see chart 6 in my attached daily chartbook). The NASDAQ 100 really got a nice boost from a tech recovery resuming its momentum from earlier in the week. As I mentioned last week after the index suffered an aggressive move downward, this index is prone to big moves down and big moves up – it is volatile, but volatility works in both ways. If you like volatility, this is the index for you! The NASDAQ closed above 7500 and is about to get a momentum boost putting it in contention to aim for its all-time high (see chart 8 in my attached daily chartbook). The small cap Russell 2000 index was yesterday’s lagger as it remains stalled in the middle of its short term range. All of the S&P, Dow, R2K, and the NASDAQ are constructive.
Today we will get a read on the health of retail when the US Census Bureau releases its Retail Sales number. It is expected to have grown at +0.4% for the month receding slightly from last month’s stronger +0.5% growth. Retail has performed quite well in recent months and investors will be watching this number carefully. We also get Industrial production and that is expected to have grown +0.3% month over month representing an increase over last month’s +0.1% gain. Finally, we get the University of Michigan Sentiment indicator which is expected to come in at a strong 96.6 after last months 96.2. The week ahead will bring us a collection of numbers that will reveal the health of the housing sector, which also will be closely watched due to its importance as an early indicator for employment and commodity prices. For today, markets will have some solid numbers to consider while continuing to bask in the euphoria caused by rumors and hopes of a trade deal with China – which means, um, no new tariffs.